Will xRapid gain traction with banks?

Ripple and its new xRapid product have been dominating headlines in the last few days. Its big claim is that it will use Ripple’s digital asset XRP as a ‘bridge’ between currencies, which will in turn speed up processing of cross-border transactions for both payment providers and banks.

The global payments market and Ripple’s Blockchain Payments Report 2018

Johnson’s co-presenter and senior analyst for corporate banking at Celent, Alenka Grealish, went into the details of the report that surveyed 700 global payments professionals in 22 countries, who answered questions about where we are in blockchain adoption, interest in digital assets and general understanding about the benefits of this new technology. The results showed the following:

•75 percent of respondents state they are extremely or very interested in using a digital asset as a settlement and/or a base currency.

•85 percent of those using blockchain in production and 90 percent of those quickly moving to production are either extremely or very interested in using digital assets as a form of payment.

•45 percent of those surveyed said they are already in production, piloting or close to signing with a blockchain provider.

•18 percent of respondents are in production or near production for the payments use case.

Grealish also remarked that the sector is at a tipping point, due to a desire to change the way money moves across borders. Grealish said: “When you envision the scale with the status quo on one side and the forces of change on the other, we see that the status quo weighs heavy, but the forces of change are starting to dominate — to tip the scale in the direction of change.”

Banks and cross-border payments

So, what is the difference between xCurrent and xRapid? Because with both products in the news and both claiming to provide faster payments between countries and currencies, it is not difficult to see that some confusion may have arisen.

OnePay FX

Let’s look at Santander’s OnePay FX first. The essence of this mobile banking app is that it uses xCurrent and RippleNet to facilitate payments between bank accounts via the blockchain. It is similar to the work Ripple has done with SBI Holdings and major banks in Japan and South Korea. The advantage is that whereas wire transfers can take days and weeks to complete, transfers on the blockchain take seconds and minutes.

Banks appear to have responded positively to RippleNet and xCurrent, and Santander, has said that it will continue to rely on Ripple to process international transactions, and as it is the biggest bank in the Eurozone, it seems likely that other European banks will follow suit.

To sum up, RippleNet and xCurrent provide transfers on the blockchain using fiat currencies. However, xRapid does something different altogether.

xRapid is a different animal

xRapid emerged from Ripple’s discovery that there was an untapped need for a low-cost liquidity payments solution in emerging markets. So, Ripple looked into how that could be achieved and its solution was to use Ripple’s native token XRP as a way of reducing liquidity costs.

Ripple also cleared up some of the confusion that has attached itself to XRP by stating: “There is a distinction between Ripple, a private company, and XRP, which is the native digital currency of an open source network known as the XRP Ledger.”

The development of xRapid is important, because it is the first time that XRP is being used in a commercial application by financial service companies. CNBC says its represents a “critical milestone” in Ripple’s bid to make cryptocurrencies and the underlying blockchain technology a part of the financial mainstream.

To date, Ripple had been testing the cryptocurrency product with Cuallix, Mercury FX and a number of other payment companies, including money transfer giants Western Union and MoneyGram. xRapid has only ‘gone live’ this week, so it is too early to assess its performance.

By comparison with Ripple’s xCurrent product, no banks have indicated any interest in using xRapid as yet, but Ripple believes that in time banks in emerging markets were most likely to be the first adopters, although they acknowledged that this may depend on local regulations.

The obstacle xRapid faces is the fact that it leverages a digital asset, and big banks have proved to be extremely cautious with regard to these. Asheesh Birla, Ripple’s senior vice president of product said of the emerging markets, “Those countries have a lot more forward-looking regulation when it comes to digital assets, so I would envision that those would be the first bank adopters,” and he may be proved correct.

How does xRapid Work?

Because payments into emerging markets often require pre-funded local currency accounts around the world, liquidity costs are high and xRapid solves this by using XRP as a ‘bridge’.

Here’s an example of how it works:

•Bob lives in the UK and wants to send £1,000 to Alice in India.

•Using xRapid, Bob’s payment provider instantly transfers the £1,000 into XRP. Ihe XRP is sent to India in seconds where it is transferred to rupees.

•The fees are almost zero and the whole process takes four seconds. Had Bob used the traditional bank system, the transfer may have taken days and it would have cost him a large fee.

At the moment only payment providers Mercury FX and Cuallix, as well as cooperative financial firm Catalyst Corporate Federal Credit Union.

Ripple hopes that xRapid will remove the scepticism about digital assets and their real use case and it will show the efficiency of using digital assets to move money more efficiently and at lower costs.

What will be interesting to watch for in the coming months, is whether the larger banks will remain loyal to xCurrent, because is a blockchain minus cryptocurrency product, or if they can be persuaded to look more favourably at xRapid which does use a digital asset, or if they will find that both these Ripple products can coexist within a bank’s suite of products, potentially answering the needs of different subsets of customers.

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